IRISH LIFE & Permanent (ILP) and Bank of Scotland (Ireland) (BoSI) have held informal discussions about the reshaping of the banking sector and how they may become involved in the so-called “third force” in banking created out of the anticipated consolidation in the industry.

Contacts between the banks over recent months have been exploratory in nature and focused on their potential participation in an enlarged bank with the Educational Building Society (EBS) and Irish Nationwide to rival the country’s two biggest banks, AIB and Bank of Ireland.

EBS and Irish Nationwide and their corporate advisers began formal discussions last week about a potential merger of the two building societies.

IL&P may later seek to adjoin its banking division, Permanent TSB, with the merged building society – with a capital injection of about €500 million into the new entity.

The Irish Timesreported last September that BoSI, which is owned by UK bank Lloyds, had signalled to the department that it would also like to participate in a "third force" merger.

Discussions between IL&P and BoSI have centred on the likely shape that an enlarged banking group could take.

BoSI had no comment to make. A spokesman for IL&P declined to comment on the discussions. He said the company has said previously that it has held discussions about the future shape of the financial services industry with various parties and that it would continue that dialogue.

He said IL&P was focused on the company’s extraordinary general meeting on December 17th and the creation of a new holding company. IL&P is restructuring itself, giving it flexibility to hive off Permanent TSB quickly in any future consolidation in the banking sector.